Why has there not been more Brexit-related volatility? European ABS and UK paper, in particular, have been less volatile than might have been expected. In our view, a certain amount of Brexit risk had been priced in prior to the vote, but the significant market sell-off in the first quarter also had the important effect of catalysing a significant transfer of UK risk exposure to relatively stable long-term asset management accounts from short-term leveraged (“fast money”) strategies. As a result, there has been little selling of UK paper since the referendum – rather, a number of accounts have looked to initiate or increase exposure to the market at the spreads seen post-vote.
The value of investments will fluctuate, which will cause prices to fall as well as rise and investors may not get back the original amount they invested.
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